Cigarettes saw sales drops peak in 1999

Cigarettes saw sales drops peak in 1999

It was possibly the high-point of recent hostilities between the soft drinks industry and health groups - a spate of headlines calling out sugar as the new tobacco.

But in a new note on CSDs today (18 July), Bernstein analysts have resurrected the tobacco analogy. Only this time, the argument is that the comparison is a good thing.

The note, “Are Carbonated Soft Drinks Becoming Cigarettes - in a Good Way?”, claims declines in the diet CSD category in the US so far mirror the precipitous drop in cigarettes sales around the turn of the century. What it also says, and which will be of succour to soft drinks executives struggling to maintain volumes, is that the peak decline in cigarettes in the US was 6.5% in 1999, about as bad as diet CSDs last year. 

So if The Coca-Cola Co, PepsiCo and Dr Pepper Snapple Group think the situation couldn’t get much worse, then they may well be right.

Bernstein analyst Ali Dibadj helpfully points out that there are marked differences between drinking a diet soda and smoking a cigarette, not least in health terms. However he says he feels “comfortable believing that diets (soda) likely won't decline at a much faster rate than they already have”.

Dibadj also feels able to draw further comparisons with tobacco when he suggests that soft drinks companies need to start raising prices in the US to more “rational” levels. Cigarettes, he claims, did this to confront declining volumes and a similar approach would work with CSDs.

Indeed, he adds: “Recent earnings and Nielsen data seem to suggest that that may be coming true, and the industry may be going through an inflection point towards steadily increasing pricing and a greater focus on profit pool.”

It won't make up for the sensationalist headlines of a few months ago. But perhaps Bernstein has found a cigarette analogy that the soft drinks industry can embrace.